Sun Pharmaceutical has shed 40 per cent of its market capitalisation from its 52-week high of Rs 1,200.70 a share this April. While issues related to the Ranbaxy integration, regulatory worries over its Halol plant and US performance were reasons for the stock fall, what particularly spooked investors was the proposed wind energy investment of $250 million. Though Sun was expecting substantial tax benefits from this investment from FY18, the markets were unnerved as this was the first time the company was planning investments in unrelated assets. Also, the project involved related third party Suzlon, where the firm’s promoter, Dilip Shanghvi, and his family has substantial stake.
The shelving of this plan is a positive, according to analysts at CLSA, as this allays fears on the company’s capital allocation strategy. They like Sun’s business model and earnings growth prospects over the next few years and believe Sun is positioning itself strongly to capitalise on the differentiated products opportunity in the US. Their sum of the parts valuations peg the target price for the stock at Rs 975, valuing Sun’s base business at Rs 942 a share and one-time opportunities such as launch of the generics of cancer drugs Gleevec and Doxil at Rs 33.